A liquidation can occur voluntarily (by a decision of the directors and shareholders) or through a court order. Voluntary liquidation occurs when the business owners determine that the company can no longer satisfy its debts and is insolvent, or likely to become insolvent. It allows for an orderly realisation of the company’s assets, investigations into the company’s failure and distribution of the company’s assets amongst creditors.
Voluntary administration is an insolvency procedure where the directors of a financially troubled company appoint an external administrator. The voluntary administration process ensures that the business, property and affairs of the company are administered in a way that (amongst other things) maximises the chances of a business continuing to exist. The administration process takes place over an interim period, usually lasting between 20 and 30 business days.
Yes, if you are trading through a company and are the director and shareholder. Call us today to discuss the process.
Liquidation and voluntary administration are for businesses trading through a company (or company and trust). If you are trading as a sole trader and have financial issues in the business, then your debts can be dealt with through bankruptcy or other debt solutions mechanism. See our “Debt Solutions” or “Bankruptcy” page for more information.
Employee entitlements (including wages, superannuation, leave and termination pays, etc.) are afforded as a priority under the Corporations Act and Bankruptcy Act ahead of other claims.
The federal government also has a scheme to protect employee entitlements in the event of a company being placed into liquidation – known as the Fair Entitlements Guarantee Scheme (FEG). This scheme provides a fund to satisfy and pay outstanding wages, leave entitlements and termination pays of employees even if the business cannot afford to pay these debts. Call us to find out more.
It is important to note that there are laws preventing “insolvent trading” which can have substantial penalties or implications. If your business is insolvent it is best to touch base to discuss what can be done legally to save your business and what your rights and obligations are.